Why you should care

Similar to the UK’s Brexit talks, Switzerland is locked in increasingly tense negotiations about its future.

By Alison Langley

The Daily DoseSEPT 02 2018

When the European Union’s council of ministers meets in November, Brexit might not be the only trade treaty on the agenda. An accord with Switzerland could find space too. But just like Brexit, the Swiss deal is shrouded in uncertainty.

Switzerland has struggled to do in four years what Britain hopes to do in two — renegotiate trade terms with the EU. Now, just as with Brexit, time is running out. In Bern and Brussels, veiled threats are increasingly replacing patient negotiations as both head for elections. The EU Parliament will hold its polls in the spring of 2019, and Switzerland will have its national elections in the fall.

At the heart of the negotiations are nearly 120 accords that Switzerland has with the EU, even though it isn’t a part of the bloc. These treaties allow Switzerland to trade with the EU, but they don’t automatically change with amendments in the bloc’s laws. That’s what Brussels wants to change, with one omnibus pact that is dynamic and seeks to impose on Switzerland changes in regulations that the rest of the EU agrees to.

We fear they [the EU] will stick the needle where it hurts the most.

Jean-Philippe Kohl, head of business and economics, Swissmem

To show the country what’s at stake, Brussels last year placed Switzerland on a watch list of tax havens. In December, it granted the SIX Swiss Exchange — where the country’s corporate giants like Nestlé, ABB, Novartis, UBS, Credit Suisse, Schindler, Adecco and Roche are listed — access to the single market for just one year, with any extension linked to the country agreeing on a master treaty. That means one of Europe’s favorite chocolate makers, as well as leading healthcare and banking firms, could soon feel the squeeze.

Tensions are rising in Switzerland as a result. In August, the country’s unions refused to join talks proposed by Switzerland’s trade minister on easing wage norms under the pact with the bloc, dealing a blow to the negotiations.

The unions fear that relaxed safeguards for cross-border workers could undercut wages and eventually lead to lowering of working standards for locals. That’s only one of the points holding up a deal. Failure to resolve these differences with the EU could bleed Swiss industry through 120, if not a thousand, cuts, as Brussels acts against Bern, and the multiple current treaties grow outdated.

“Free trade with the EU is enormously important for us,” says Jean-Philippe Kohl, head of business and economics at Swissmem, a group representing the metal, electronic and machine industry.

Switzerland is one of the world’s 10 largest capital exporters, and its most important trading partner is the EU. Roughly every second Swiss franc is earned from business with its neighbors. Nearly 61 percent of exports from Swissmem go to the EU, says Kohl. His group estimates 160,000 jobs in its industry alone are directly linked to these exports. And the trading agreements allow the wheels of Swiss industry to move smoothly. The accords smooth barriers to trade and allow citizens free movement between the EU and Switzerland. They address research, aviation, road and rail, and mutual recognition of technical standards, among other things.

All elevators installed in the EU, for instance, must meet the same safety requirements. This is also true for lifts made in Switzerland. Because of a treaty, though, a Swiss elevator only needs to be certified once, in Switzerland, before it is installed for a customer in the EU. Without that agreement, that elevator would need certification both in the EU and Switzerland, adding bureaucracy, costs and time for the manufacturer. But eventually, a failure to update norms in these treaties in line with what the rest of the EU follows could make Swiss products outdated and unwanted in the rest of Europe.

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Some, like Patrick Dümmler, an analyst at Avenir Suisse, an independent think tank, believe that Switzerland has time on its side, even if it fails to arrive at a deal with the EU soon. “The world will still turn. Switzerland will still import and export,” Dümmler says. “The immediate effect won’t be great. But in the medium and long term we will face more and more substantial obstacles.”

But others, like Roberto Balzaretti, the Foreign Ministry official leading the negotiations for Switzerland, argue that Switzerland can’t afford to wait for long. Balzaretti compares the scenario to failing to update the software on your cellphone. Miss one update and the phone still works. Miss several over the years and the phone is no longer compatible with others.

In December 2017, the EU gave Switzerland a taste of what the future could look like, by setting the one-year access timeline for the Swiss stock exchange. The ostensible reason: The bilateral agreement concerning trade rules for stocks was too outdated. Mina Andreeva, a spokeswoman for the EU, declined to speak about what may happen to the Swiss stock exchange after Dec. 31, if an agreement isn’t reached by then, saying in a press briefing in early August that the commission was “closely monitoring” negotiations. She, and Swiss officials, did not respond to questions for this article.

Inability to trade with Europe could prove catastrophic for Switzerland, says Kohl. “We have no raw materials,” he says. “But we do have products which we can sell. And if we can’t sell them, we will become impoverished.”

It’s not just technical barriers that Swiss businesses are concerned about. The country’s prestigious universities could lose out on important research programs that are funded with EU grants. “We fear they will stick the needle where it hurts the most,” Kohl says. “They could shut us out.”

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This isn’t the first time the EU has flexed its muscles to get Switzerland to conform to its rules. In 2013, Brussels excluded its neighbor from an important research program, Horizon 2020, for one year until Bern agreed to recognize Croatia, a new EU member, as part of the free movement of people. “Unfortunately, the EU does this sometimes,” says Dümmler. Next, many fear, the EU could train its eyes on Switzerland’s electricity grid. The country has more than 40 cables that cross borders.

Key sticking points appear intractable for the moment. One involves unemployment insurance of its citizens. If, say, a French worker has been laid off in Switzerland, which country pays the unemployment benefits? The other is squaring the EU’s fundamental principle of the free movement of people with Swiss unions’ worry that cheap labor could undermine salaries, working conditions and quality.

Vania Alleva, president of Unia, Switzerland’s largest trade union, says unions support the principle of the free movement of people, “but a reduction in employee rights is out of the question.”

Currently, EU companies must register eight days in advance before bringing temporary workers into Switzerland, where Swiss officials conduct spot-checks to ensure the workers are paid Swiss minimum wages and work under Swiss rules. Brussels says this places a burden on competition for EU companies. If an IT system breaks down, who wants to wait eight days to get their German contractor to fix it?

Swiss companies could benefit from changes. An Austrian construction worker crossing the border would earn about $15 per hour from his company, but is entitled to $21 per hour in Switzerland. Unions, though, argue that the EU is effectively questioning the whole existence of “protective measures [for Swiss workers],” says Alleva. “We must defend ourselves against this massive attack.”

That’s how many in Switzerland feel — they’re David, dependent on exports to live, against a Goliath surrounding them that seems to hold all the cards. Kohl disagrees and thinks compromise is key. “We don’t have it good in Switzerland because it was a gift from God,” he says. “We have it because we’ve had good relationships with our neighbors.”